What led to Robert Gerard's downfall?

By Tim Colebatch, Canberra

3 December 2005 — 11:00am

Why was Robert Gerard chosen for the Reserve Bank board anyway?

Both parties put business leaders on the board to advise the Reserve, including at least one from manufacturing. Gerard Industries, then owner of the Clipsal brand, is one of Australia's biggest home-grown manufacturers, and Gerard has long been prominent in business circles.

It did not hurt his chances that he has also given more than $1 million to the Liberal Party since 1998, and is known to give priority to keeping interest rates low.

What were Robert Gerard's problems with the Tax Office?

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According to the ATO, his family firm, Gerard Industries, of which he is chief executive, chairman and major shareholder, set up a firm in the tax haven of the Netherlands Antilles, sent it millions of dollars supposedly as insurance payments (written off against tax), then received the money back in tax-free form.

The ATO alleged the company was in fact set up by Gerard Industries, the policies provided no benefits, and "the dominant purpose (was) … to secure a tax benefit".

In 2000, an 11-year tax audit concluded that the arrangement amounted to tax evasion, and the ATO launched proceedings to recover $150 million in unpaid taxes, interest and penalties. It also denied $56 million in tax deductions Gerard Industries had claimed for an investment in two films costing $9.5 million to make. Gerard contested the findings, and a long court battle followed.

Did Gerard declare this when he was appointed to the Reserve Bank board in March 2003?

No. He made a declaration, backed by Tax Commissioner Michael Carmody, that he had no personal tax outstanding. He did not declare that the family company he ran was fighting charges of tax evasion.

The Australian Financial Review reports that Gerard says Treasurer Peter Costello told him then: "I know there's an issue with the Tax Office, but I don't have a problem with you on the board."

Costello has told Parliament he knew nothing of the case involving Gerard Industries.

How was Gerard's tax dispute resolved?

In December 2003, nine months after he joined the Reserve board, a compromise was reached in which Gerard paid the ATO just over half of what it sought. He has paid tax and interest only on the insurance issue, with no penalties. As usual, the deal involved no admissions of any fraud, evasion or deliberate tax avoidance. Gerard, however, did pay the full amount of tax the ATO said was owing.